Car loan discharged? Stop paying it

Dear Bankruptcy Adviser,
My husband and I had a Chapter 7 bankruptcy close 15 months ago. We were under the assumption that we did not include our cars and have been making our monthly payments as usual. Today, we were going to try to trade one of them for a new car and the manager at the car dealer showed us that our car loans were discharged with a zero balance.

I am so confused because our lawyer never disclosed this information to my husband and me. The car dealer told us we could call the company we are paying to come and get the car because we are not getting credit for these payments. Is this legal? Every time I ask for a payoff, they give me no answer. Would we be liable for this vehicle if we were to purchase a new one? We really want to establish credit again.
— Carmela

Dear Carmela,
You are dealing with one of the more frustrating issues with car loans, post-bankruptcy filing. A few clients have told me that the creditor reports the balance as eliminated in bankruptcy and refuses to report future car payments to the credit report.

Your attorney cannot be responsible for knowing how each and every lender will report post-filing car payments. Most lenders do report those payments, but as in your case, some do not. The lender is acting within its legal right not to report post-filing payments. That does not mean that the car loan is paid in full. You would have to confirm with the lender that the balance is paid in order to receive the title to the car. I don’t understand why the lender is not giving you an answer, which is a little bizarre. You may need to send a demand letter in writing.

The car dealer is correct when he states that you can surrender the vehicle and not have any liability for the remaining balance. As your credit report indicates, the balance has been written off. Therefore, you could not be sued for the remaining balance after turning in the car.

This could work in your favor because when you trade in a car, the lender usually pays off the balance owed on the trade-in and adds that to the balance of the newly purchased car loan. Now, you will be able to purchase a new car without using that age-old strategy.

The issue in your case is that you did not reaffirm the balance owed on the car. A reaffirmation agreement is a legally enforceable contract filed with the bankruptcy court, which states your promise to repay all or a portion of a debt that may otherwise have been subject to discharge in your bankruptcy case. Some lenders demand you sign this agreement and will not send you statements or report payments to the credit bureau without the court-approved agreement. In many instances, lenders consider it a breach of the terms of your car loan and will repossess the car if you fail to sign the agreement.

Without the reaffirmation, this lender does not want to report post-filing payments. It is a shame you cannot get credit for the payments, but you are also protected in the unfortunate event that you cannot make payments on the car anymore.

There is credit after bankruptcy, and while your situation will require some more effort, you can have good credit again.

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